What is Non-Financial Reporting?

What is Non-Financial Reporting?

Non-financial reporting refers to the disclosure of environmental, social, governance, and other sustainability-related information that sits outside traditional financial statements. It encompasses a broad range of disclosures—carbon emissions, workforce diversity, human rights practices, board composition, supply chain labor standards—that provide stakeholders with a more complete picture of organizational performance, risks, and impacts.

Why It Matters

The term "non-financial reporting" dates to the EU's 2014 Non-Financial Reporting Directive (NFRD), which required approximately 11,700 large public-interest entities to disclose information on environmental, social, employee, human rights, and anti-corruption matters. While the NFRD marked a regulatory milestone, its implementation revealed significant weaknesses: vague requirements, inconsistent application across member states, and limited comparability between reports.

The CSRD, which replaced the NFRD starting in 2025, addresses these shortcomings by introducing detailed European Sustainability Reporting Standards (ESRS), mandatory assurance, digital tagging (XBRL), and a dramatically expanded scope covering approximately 50,000 companies. The evolution from NFRD to CSRD represents a shift from "disclose something about sustainability" to "disclose specific, comparable, assured sustainability data according to binding standards."

Globally, the trajectory is clear: non-financial reporting is converging with financial reporting in rigor and enforceability. The ISSB standards, SEC climate rules, Singapore's mandatory climate reporting, and Japan's revised disclosure requirements all reflect the same direction. The label "non-financial" is itself becoming outdated—sustainability information increasingly has direct financial implications, and the regulatory infrastructure treating it as a separate, lesser category of disclosure is dissolving.

For companies, this means non-financial reporting can no longer be managed as a communications exercise or annual report supplement. It requires the same infrastructure—data systems, internal controls, governance processes, and assurance readiness—that underpins financial reporting. Organizations still treating sustainability disclosure as a marketing function face a rude awakening as assurance providers begin testing their data.

How It Works / Key Components

Regulatory framework identification determines which non-financial reporting obligations apply. Companies operating in the EU face CSRD/ESRS requirements. Those listed in ISSB-adopting jurisdictions must comply with IFRS S1 and S2. US-listed companies may face SEC climate disclosure rules. Many companies are subject to multiple overlapping frameworks, requiring careful mapping of requirements to avoid duplication and gaps.

Standard alignment and gap analysis compares current disclosures against applicable standards. ESRS contains over 1,100 data points organized across topical standards (E1–E5 for environment, S1–S4 for social, G1 for governance) and cross-cutting standards (ESRS 1 and ESRS 2). A gap analysis identifies which data points the organization can currently report, which require new data collection, and which need methodological development.

Data collection and control implementation builds the infrastructure to produce reportable data. This includes establishing data ownership, collection processes, validation procedures, and documentation standards for each disclosure requirement. The controls should mirror—or integrate with—the organization's internal controls over financial reporting, since assurance providers will apply similar testing methodologies.

Report preparation and filing produces the final disclosures in required formats. Under CSRD, sustainability information must be included in the management report and digitally tagged using the ESRS XBRL taxonomy for machine readability. This technical requirement adds complexity beyond content preparation—companies need systems capable of producing structured digital outputs alongside human-readable reports.

Council Fire's Approach

Council Fire guides organizations through the full non-financial reporting lifecycle—from regulatory mapping and gap analysis through data infrastructure buildout, report preparation, and assurance readiness. We specialize in helping companies transition from NFRD-era voluntary approaches to the structured, assured, digitally tagged reporting that CSRD and ISSB demand, with practical implementation plans that respect budget and timeline constraints.

Frequently Asked Questions

Is the term "non-financial reporting" still accurate?

Increasingly, no. The CSRD deliberately uses "sustainability reporting" rather than "non-financial reporting," reflecting the recognition that ESG information often has direct financial implications. The ISSB explicitly focuses on sustainability-related financial disclosures. The label persists in common usage and in references to the NFRD, but the conceptual shift is toward viewing sustainability information as an integral part of corporate reporting rather than a separate, non-financial category.

Which companies fall under CSRD scope?

CSRD phases in over four reporting years: 2024 data (reports due 2025) for companies already under NFRD; 2025 data for large companies meeting two of three criteria (250+ employees, €50M+ revenue, €25M+ total assets); 2026 data for listed SMEs; and 2025 data for non-EU companies with €150M+ EU revenue and an EU subsidiary or branch. The full scope covers approximately 50,000 companies, including an estimated 10,000 non-EU headquartered entities.

How does non-financial reporting relate to ESG ratings?

ESG rating agencies (MSCI, Sustainalytics, ISS, CDP) heavily rely on public non-financial disclosures as data inputs. Companies with comprehensive, well-structured sustainability reports typically receive more accurate and favorable ESG ratings because raters have more data to work with and need to make fewer assumptions. As mandatory reporting standards improve data availability and comparability, the relationship between disclosure quality and rating accuracy should strengthen further.